Both ‘insurance density’ and ‘penetration’ in India are among the lowest in the world. ‘Economic growth’ presents us with a God-sent opportunity to spread insurance.
Our Insurance Act of 1938 is one of the most comprehensive pieces of law. A notable aspect of it is that no risk, of whatever kind, can be covered unless the insurance premium is paid. Therefore, the problem of collecting outstanding premium does not exist in India. This provides enormous strength to the market.
India’s insurance history can be broken up into three segments: Segment 1 is from origin to nationalisation in 1956 (for life) and 1973 (for general). Segment 2 is from nationalisation to opening of the market in 2000. And Segment 3 is from opening up in 2000 until now. Let’s look at the details.
General Insurance has been under a strictly administered rate regime. During the state-owned period the government ensured that the industry made its presence felt far and wide. The market was opened up for private participation in 2000. Tough regulations were prescribed for adequacy of capital, solvency margin, investments, policy holder protection, regulation of intermediaries and the like.
In General insurance, the number of offices grew from 789 at the time of nationalisation to 4175 in 2000 and 10,547 offices now. In Life Insurance, the number of offices grew from 250 to more than 10,000 in 2017. Life insurance funds grew from Rs 1.94 lakh crore in 2000 to Rs 29.80 lakh crore in 2017.
FAR-REACHING IMPACTS DURING THE DECADE TO FOLLOW
After liberalisation and entry of private players in the market, premium volumes have increased at compounded annual growth rate of about 22.5 per cent and 13.0 per cent in life and general insurance respectively. Analysts have expressed the opinion that at this rate of growth, the market size in terms of premium could rise to Rs 17.50 lakh crore ($ 250 bn) in life insurance and Rs. 6.50 lakh crore ($100 bn) in general insurance by 2030.
As in 2017, life and general insurance penetration in India has been at 2.72 per cent and 0.77 per cent respectively. Life and general Insurance density were $46.50 and $13.20 respectively. Compared to growing markets such as Brazil and Malaysia, India has a long way to go to achieve acceptable penetration levels – which may be achieved by 2030.
At the end of March 2017, there were 385 licensed insurance brokers, most of them Indian brokers. Limited existence of agency model presents an opportunity for brokers in general insurance. Increasingly, banks have adopted transacting insurance business through a bancassurance model. The Indian regulator IRDA has issued licences for global reinsurers to operate branch offices in India in the recent past.
By 2030 there will be significant shift in the way the industry operates with all service-related functions managed by intermediaries/exclusive service providers while risk-bearing function would be confined to insurers. A substantial part of the processes such as document issue, accounting, customer service and the like are all automated and the insurance sector is adapting technology at a fast pace. The Indian insurance industry will be fully automated by 2030 and there will be minimal paper operations. Availability of data over a long period in the past and future would enable portability in some critical insurances such as life and health.
After the market was opened up, several new insurance companies have started business in India. Current position and estimate for 2030 are given in the chart.
It is seen that in the 17 years since liberalisation, the growth in Insurance premium has been 15 per cent average per annum overall. The trend is expected to continue.
Under general insurance, a large percentage of assets such as houses, liability, goods in transit and so on, are not insured at all. This is reflected in the analysis of insured and uninsured losses after any catastrophe. A strong push is necessary to protect property and persons against losses. It is time the government and industry got together to devise comprehensive insurance cover for these to alleviate the financial loss suffered by citizens as substitute for government grant.
To speed up availability of insurance protection widely, tax exemptions such as Section 80C etc. may be reviewed to make them particularly accessible to the lower middle class. One suggestion would be linking insurance for common man through instruments such as ration card or Aadhaar card to begin with. It is imperative that judicial system is strengthened to ensure compensation for all civil liabilities which need to be expanded to more areas of interactions such as hospitals, malls, public places, etc.
Government establishments should be required to ‘transfer risks’ to commercial risk-bearers viz., insurance companies to bring about efficiency and transparency and to ensure accountability in managing financial resources. It will be valuable to commercially insure a good majority of infrastructure items such as bridges, roads, waterways, etc. Over time, the dependence on government subsidies or grants after each catastrophe including death should be replaced by transferring the risks to insurance industry by paying premiums. Compensation to public, workmen, liability for negligence and physical assets should be commercially insured. Except the core assets of the Central and state governments, physical assets belonging to municipalities, panchayats and corporations should be insured with commercial insurance industry. The cost of such
insurance should be part of the annual expenses of such corporations, panchayats etc. The funds so generated and retained would facilitate long term investment options and employment-creation opportunities.
It is a well-established fact that the Indian insurance industry is one of the key growth drivers of our economy. Thus, if the current reservoir of untapped potential in this market is promptly and responsibly handled, it would be of immense benefit to both the economy and its constituents.